CVS Health expects lower Medicare performance rating to impact 2024

(Reuters) – CVS Health (NYSE:) Inc said its largest health insurance plan for Medicare recipients received a lower performance rating from the Federal government program, sending shares of the company down around 5% in extended trade.

In a regulatory filing late on Thursday, CVS said the newly-released Star Ratings for Medicare Advantage plans in 2023 lowered the rating for the company’s Aetna National PPO plan to 3.5 stars from 4.5.

The reduced rating means the plan, which includes more than 1.9 million members, is ineligible for performance-based bonus payments from the government in 2024 and is likely to impact earnings.

Medicare Advantage plans are run by private insurers and are an alternative to the original Medicare – a government program for older Americans.

Star Ratings are a performance and quality score given by the U.S. Centers for Medicare & Medicaid Services, since 2007, based on its annual consumer surveys.

Ratings range from one to five stars, with five representing the highest possible ranking, and are used by customers to decide which insurance plans they want to enroll. Enrollment typically drops with a drop in ratings.

CVS said it does not expect any impact to its 2022 earnings forecast from the rating change and expects to mitigate any financial impact on its preliminary 2023 outlook.

Evercore analysts wrote in a note the ratings were down for the overall health insurance industry, but the move was expected as part of normalizing elevated ratings that had reflected allowances related to disruptions from the pandemic.

CVS said it still aims to grow adjusted earnings per share “at low double-digit year-over-year rates in 2024.”

The Woonsocket Rhode Island-based company added it was evaluating some capital deployment alternatives, including share repurchases, to mitigate any possible impact on 2024 earnings.

CVS shares fell as much as 5.2% to $93.5 in extended trading.

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